The deal is central to the Co-op’s hopes of reviving memories of the 1960s, when the group was Britain's biggest grocery retailer with about 13m customer-members.

Tesco currently holds the largest market share with 31.6%, with Asda and Sainsbury’s holding 16.7% and 15.9% respectively. Morrisons currently holds a 11.5% share while the Co-op currently has the fifth largest market share of 7.7%.

The takeover will mark the second transforming deal for the group in the space of a year.

Last July, the Co-op merged with United Co-operatives, bringing together the UK’s two most powerful regional Co-op movements. An unprecedented three-year, £1.5bn investment programme is being rolled out to modernise the group's convenience stores as well as its travel agents and funeral parlours under a single Co-op brand.

The Co-op's food range has been overhauled by former Marks & Spencer executive Guy McCracken, who has extended the “Grown by Us” label, sourced from the Co-op's own farmers and launched a “Truly Irresistable” brand.

More than 120 Somerfield stores are expected to be sold off by the Co-op to rival supermarket groups, but the deal is still likely to attract the scrutiny of the Office of Fair Trading.

Somerfield was put up for sale by the Apax-led consortium in January. It bought the business for £1.1bn in 2005, but its hope of selling at £2.5bn were dashed by the credit crunch.

Asda is understood to have tabled a highly conditional offer for the chain last summer, its second within a year, but was unable to agree on price.

The Apax-led consortium is set to retain some of the Somerfield store freeholds under the Co-op deal.